Tag: regulated industry

On June 30 of this year the Court of Appeals of New York issued its final ruling in Wallach v. Town of Dryden, holding that municipalities in New York State have the authority to exclude hydraulic fracturing from their borders through zoning.[1] Although the case hinged upon the interpretation of a New York statute with no reach beyond the state’s borders, the Town of Dryden decision has significance for supporters and opponents of hydraulic fracturing throughout the country as a sign that local governments may erect serious barriers to the controversial practice even in the absence of stringent Federal or state regulation.

Dryden, a town of less than 15,000 people located outside of Ithaca, New York, prohibits all “industrial” development within town borders through its zoning code.[2] In August 2011 the town amended its zoning ordinance to specify that all activities related to oil and gas extraction are included in this general prohibition on industrial development.[3] Anschutz Exploration Corporation, an energy company that held leases to oil and gas rights on several Dryden properties, sued the town in New York State court in September 2011, arguing that New York’s Oil, Gas and Solution Mining Law (“OGSL”)[4]preempted the amendment. Dryden prevailed on a motion for summary judgment, which was affirmed by state appellate court; the case reached New York’s highest court in summer 2014.[5]

The legal issue in the case was whether OGSL’s supersession clause, which states that the OGSL supersedes all “local laws or ordinances relating to the regulation of the oil, gas and solution mining industries,”[6] prevented towns like Dryden from passing zoning ordinances that exclude hydraulic fracturing. To answer this question, the Court of Appeals engaged in a straightforward exercise in statutory interpretation. Examining the plain language, statutory scheme, and legislative history of the law, the Court concluded that the supersession clause was intended to prevent municipalities from directly regulating oil and gas development—i.e., imposing specific technical and operational requirements on drillers.[7] Finding no indication that the OGSL was intended to curtail towns’ traditional home rule authority to enact zoning ordinances, the Court held that Dryden’s zoning amendment is not precluded under the supersession clause and affirmed the intermediate appellate court’s decision.[8]

The Court of Appeals decision vindicated hydraulic fracturing bans and moratoria enacted in Dryden and 179 other municipalities, with an additional 86 municipalities considering similar measures as of October 9, 2014. Many of these towns are underlain by the Marcellus Shale formation—estimated to be the largest natural gas reserves of any formation in the United States—and in the long run these ordinances could permanently place large quantities of natural gas beyond the reach of extractors. However, the Town of Dryden did not have the immediate effect of halting any ongoing hydraulic fracturing operations. New York State has had a de facto moratorium on the practice for six years, with Governor Andrew Cuomo’s administration refusing to permit any drilling until a study examining its health impacts is completed. Accordingly, no hydraulic fracturing was actually underway in New York State throughout the Town of Dryden litigation. Of course, if the moratorium is ever lifted, the decision will have real practical effect on the ability of energy companies to exploit New York’s natural gas reserves.

Because Town of Dryden was a state court decision hinging a narrow question of interpretation of a state statute, it has no legal effect beyond New York’s borders. However, the symbolic significance of Dryden’s victory reaches nationwide. Mary Anne Sumne, Dryden’s town supervisor, has expressed hopes for the decision’s impact beyond New York’s borders: “I hope our victory serves as an inspiration to people in Pennsylvania, Ohio, Texas, Colorado, New Mexico, Florida, North Carolina, California and elsewhere who are also trying to do what’s right for their own communities.”

The ability of towns in these states and others to restrict hydraulic fracturing will depend upon the interaction between state-specific home rule jurisprudence and natural resource laws, but Dryden’s high-profile victory has encouraged towns that have enacted similar ordinances from Hawaii to California to Texas. With the national politicians of both political parties largely in support of hydraulic fracturing and state-level governments varying dramatically in their oil and gas extraction regulations, local control efforts such as Dryden’s present one of the most formidable obstacles to the controversial practice.

With U.S. climate-change bills and international climate talks repeatedly facing defeat, one of the main ways for the United States to significantly reduce its greenhouse gas emissions could be through both improving grid efficiency and transmission and integrating renewable energy into the electricity network. But surprisingly (or maybe not surprisingly), the government agency with the necessary driving force and legal authority to do so is relatively unknown to most individuals.

FERC Jurisdiction

Enter the Federal Energy Regulatory Commission, or FERC – the big bad regulators of the US energy market. Most recently, FERC led the investigation of JP Morgan for its alleged manipulation of California energy market prices through unlawful bidding schemes, ultimately resulting in a $400 million settlement.

Under the Federal Power Act (FPA), FERC has exclusive jurisdiction over the transmission and sale of electric energy in interstate commerce and all facilities for such transmission or sale, which, among other things, includes setting wholesale electricity rates.[1] Under its statutory mandate, FERC must ensure supplies of electric energy at just, reasonable, and not unduly discriminatory or preferential rates.[2]

Under recent leadership, FERC has taken a more aggressive approach in defining its statutory power under the FPA and has begun to play a more prominent role in energy efficient and renewable generation. One of the first, and most significant, ways FERC has flexed its regulatory power with regards to energy efficiency is with the integration of demand response resources into the wholesale electricity market.

Demand Response

FERC defines demand response as a reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.

Retail electricity customers often pay a fixed rate for electricity. However, in organized wholesale markets, electricity prices vary widely between seasons and even throughout the day depending on demand, supply, and other transmission constraints. This price structure creates a disconnect between wholesale and retail electricity markets, and therefore retail customer usage is not responsive to fluctuations in wholesale electricity markets. Demand response promises to “bridge the wholesale-retail gap by giving retail customers the incentive to withhold consumption when wholesale prices are high, easing strains on the system at time of peak electricity usage.” Currently, however, much debate surrounds the question of how best to send wholesale price signals to retail customers.

FERC Order 745

FERC Order 745, issued March 15, 2011, mandated that retail customers participating in demand response programs be compensated for their reductions in energy use at the wholesale market price for energy. Order 745 has been criticized by electric utilities, who claim that it overcompensates demand response participants by providing a double payment: the benefit of avoiding the cost of purchasing electricity and the wholesale price of electricity. According to the Order’s critics, this will lead to economically undesirable outcomes and inefficient behavior long-term. After FERC denied a request for rehearing on the Order, these objecting parties sought review at the Court of Appeals, where the case is currently pending.

Possible Consequences of Order 745 and Demand Response

Critics of demand response are concerned that rather than causing an overall decrease in energy consumption, these programs will simply shift demand from high-peak to off-peak periods, possibly resulting in even greater energy consumption in total. For example, in a scenario without demand response programs, a business seeking to reduce its electricity costs might install energy efficient equipment to reduce its electricity consumption. Alternatively, as a participant in a demand response program, the business might shift production to off-peak periods, consuming the same level of electricity while paying lower costs and receiving market-rate compensation.

However, many in the clean tech industry support providing demand response participants with wholesale prices, claiming demand response can act as a cost-effective alternative to building new generation. What this means is that a variety of entrepreneurs and technology solutions start-ups will have a chance to create value for their product, and consumers will have the ability to make choices in the energy markets.

Bottom Line

FERC’s introduction of demand response does not exactly equate to energy conservation. However, it may pave the way for increased participation and generation of electricity by new renewable sources. And with FERC taking a new aggressive stance on its jurisdiction to regulate demand response resources, the agency is showing promising first signs of its willingness to take on reductions in fossil fuel consumption and U.S. production of greenhouse gases.

The last century marked a sea change in the way agricultural operations are conducted. This “industrialization” of agriculture has significantly increased efficiency and yields, but it also has generated — as an unintended byproduct — pollution. The pollution resulting from commodity crop operations can have harmful effects locally and downstream. Typically, when the production of a good generates adverse environmental effects, the firm that profits from the activity is required to minimize the impacts. This is rarely the case in the agriculture sector, which is exempt from key provisions of the federal environmental laws. As a result, the harms are externalized and the public bears the pollution costs. The federal taxpayer also supports the agricultural sector through myriad farm subsidy programs. Large-scale farms — those with annual sales of $500,000 or more — represented six percent of U.S. farms in 2009 but received more than half of government commodity payments. These subsidy recipients typically are not required as a condition of receiving payments to implement measures that will protect the environment from pollution generated by on-farm activities. The authors present two recommendations for reform, neither of which would require additional federal subsidy payments. First, large-scale commodity crop operations that opt to receive any form of federal farm subsidy should assume responsibility for implementing a set of baseline stewardship measures to reduce nutrient pollution. Second, these same farms should report on the quantity, type, and timing of fertilizers they apply.

This Article is the first comprehensive analysis of the Obama Administration’s national auto policy, which set the first federal greenhouse gas standards and strictest fuel efficiency standards for new cars and trucks in U.S. history. It describes the complicated legal, administrative and political background that led to a harmonized federal program, including the history of litigation and conflict among the auto industry, environmental groups, California and federal regulators. It explains how a confluence of events — a new administration, a domestic auto industry in crisis, a landmark Supreme Court decision, and collective exhaustion with a thirty-year struggle over fuel efficiency standards — primed all of the parties to support a solution, one that would require significant legal and administrative dexterity to devise and implement. The Article describes in detail the joint rulemaking by the U.S. Environmental Protection Agency and the National Highway Traffic Safety Administration, through which the agencies established a new uniform program. It explores how the joint rulemaking process afforded the agencies an opportunity to pool information and expertise, harmonize potentially inconsistent regulatory approaches and bridge cultural differences. It also chronicles the innovative use of commitment letters to formalize industry and state support for the joint rule, and to settle pending preemption litigation. The Article discusses the implications of the “car deal” for the Obama Administration, which at the time was bailing out the auto industry, pressing Congress for comprehensive energy and climate legislation, and anticipating the U.N sponsored climate negotiations in Copenhagen. It also discusses the importance of the car deal to environmental law. As the first binding federal regulation of greenhouse gas emissions under the Clean Air Act, this mobile source rule exerted a legal domino effect, leading, inexorably, to EPA regulation of stationary sources as well. The national auto policy thus unleashed the most powerful existing tool the administration had at its disposal for tackling the problem of global climate change. The Article concludes with a discussion of the implications for administrative law, arguing that one of the most important legacies of the car deal is the new prominence it brought to joint rulemaking, which has significant potential to improve the clarity and quality of regulation in situations where agencies share overlapping or closely related regulatory authority.

In Howmet Corp. v. EPA, 614 F.3d 544 (D.C. Cir. 2010), the Court of Appeals for the District of Columbia Circuit upheld a U.S. Environmental Protection Agency (“EPA” or “the Agency”) enforcement action as consistent with EPA’s regulations defining regulable “spent material” under the Resource Conservation and Recovery Act (“RCRA”). The court’s decision is a striking abdication of the judicial responsibility to ensure that administrative agencies act only within statutory limits. In deferring to EPA’s position as a reasonable interpretation of the Agency’s rule, the majority failed to consider the overarching statutory limits that arguably render EPA’s reading of the regulation inconsistent with RCRA. When review of the original rule has been timebarred by statute, this shortsighted deference allows an agency to interpret an ambiguous rule in order to exercise power over activities outside the agency’s congressional grant of authority. In dissent, Judge Kavanaugh moved toward an interpretive approach that would prevent such agency overreach by allowing the text of the statute to inform judgments of the reasonableness of the agency’s reading of its rules.

This Comment first addresses the statutory, regulatory, and factual background of the case and relates the decision of the district court. Then, it discusses the majority and dissenting opinions in the Court of Appeals. Third, the Comment briefly lays out the rationale for Seminole Rock deference and some criticisms of it. Finally, it examines how the Howmet majority’s opinion interacts with Seminole Rock deference and argues that courts could better enforce statutory limits on agency power by evaluating the reasonableness of agency regulatory interpretations in the light of the authorizing statute.

Embedded within the structure of much American environmental regulation is a distinction between the new and the existing. This distinction reflects a recurrent political challenge for environmental policymakers: whether and how to mitigate regulatory burdens when policy change upsets settled expectations and investment commitments. Environmental law often grandfathers existing products and pollution sources or provides them with other kinds of transition relief. This Article presents a survey of transition policies in environmental regulation, which is followed by a pair of short case studies drawn from the trucking and pesticide industries. These examples demonstrate that the form and extent of transition relief may be substantially influenced, first, by the cost impacts of regulatory initiatives — which are in turn shaped by the composition and competitive dynamics of the regulated industry — and, second, by path-dependent, change-resistant legal and institutional arrangements in the policy arena.